Planting Seeds in the Borrower's Head - Part 1
In regards to the world of mortgages, can one be more confused now then ever before? You betcha... As many of us know, FHA is now trying to reduce the seller concession from 6% to 3%. I wrote about it here : HUD seeks public comment on 3 issues for FHA loans & Solutions for these FHA loan changes.
Let's take this up a notch now. Just the other day, I wrote a post about some listing agents not accepting offers for FHA loans and or VA loans for various reasons. There could be several ways to look at this... but there is more.
My post is sparked by a post that Lenn Harley wrote yesterday; Lenn just had a Eureka moment!! Conventional financing may permit more seller incentive than FHA. Now, don't get me wrong. I respect Lenn and many of her opinions. I will agree with the first part of her post, in regards to the questions that were asked. But I have to disagree with the 2nd part, because in my opinion, a realtor should only discuss the very basics. Lenn points out that she is looking at the forest while I look at the twigs. Well, it's my job to look at the twigs when discussing such issues when it comes to the different types of mortgages. And I believe that Lenn was looking at some of the branches when giving her opinions, and not the forest.
Let me define what should be the forest for the realtor. What should a realtor know and how far should they go.
A realtor should know that there are FHA loans, VA loans, Conventional loans, USDA loans, and any special kind of grant programs or state mortgage programs in their area. The realtor should know the function of each loan. And in my honest opinion, they should stop there.
So if a borrower came to you with a loan officer already, you might want to stick to the basic questions. This would be my opinion of what a forest would be for that realtor. One of your questions to the borrower is asking them if they are military or ex-military. If they say yes, you then ask them if their loan officer went over VA loans and compared them to conventional & FHA loans. Or if you are predominantly in an area where USDA loans are accepted, you ask the borrower if this option had been presented to them. If you are a realtor like Lenn Harley, to where you have your buyers fill out a buyer's financial statement and you see good assets, you ask them if the loan officer went over various methods of financing. Such as putting 5% down to 10% down, and comparing this to a conventional loan or an FHA loan.
Here is where I run into the problem of a realtor taking this a step further. Lenn mentions this in her post.
"Our home buyers can receive 6% closing help with 10% down. Which benefits our buyers more, making a larger down payment or paying their cash for closing costs???"
Why I am upset about such a statement is that there are still way to many unknowns. And if you as a realtor make this suggestion and make it sound like the answer would be to put 10% down so you as the buyer can get the seller help of 6%, this could be a huge mistake. I know Lenn's statements are general and she even says this, but I think that can cause more problems than good. And if the loan officer doesn't know any better, how can you as a realtor know what is better then?
Here is another general statement that Lenn makes. "The lower interest rates often offered with 10% down compared with FHA may make the conventional more attractive."
In my opinion, this is just an assumption that could very well play tricks on the borrower's mind. I will tell you why some of these statements can create more problems than one would think. If the borrower starts to believe everything that the realtor says, and I end up crunching some numbers that actually make sense and explain this to them, they might still turn down my suggestions. Even if I show them on paper. Yes, this has happened before.
Conclusion : Trust me, I understand what Lenn is saying and trying to do. But in my opinion, if you go below a certain point as a realtor when explaining their financing options, could you actually hurt the situation more than help it. I say yes. And yes, we will have some bad loan officers in this business, period. It's a fact. But if you think something doesn't sound right, you just seek other like-minded mortgage professionals that you trust. But don't take it in your own hands to get into more specifics. That is why I do mortgages for a living, full time, and nothing else. I don't give opinions based on assumptions, I give facts based on collecting facts. And yes, in my opinion, there is a huge difference. What people need to understand is that a borrower's decision could be influenced because of what they heard from their realtor, just like when borrowers tell you that their dad tells them to pay no points, or to put 20% down to avoid mortgage insurance. It happens.
Part 2 - Facts & Numbers vs Assumptions -
In part 2 tomorrow, I am going to dissect the differences of putting 10% & 5% down on conventional loans with different credit scores and showing the difference on FHA loans with 3 1/2% down and those same credit scores. I want to introduce different reasons to why even with 10% down and getting the seller to pay an additional 3% could be worse for the buyer, such reasons to make you think otherwise.
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